Data: The grocery winners and losers from the Covid-19 pandemic

Wednesday’s update from Sainsbury’s for the year to March 6 completed – with the exception of Asda – the updates from the grocers covering the pandemic year in food retail. 

The results, along with other data such as Kantar market share figures, paint a vivid picture of how the pandemic has fundamentally changed the grocery sector.

While grocers have delivered record sales over the year, the pandemic has not affected them all equally and leaves them in different shapes strategically ahead of a year of tough comparables and greater competition for customer spend as restrictions unwind. 

The bottom line

The data shows that over the last year, all of the grocers have generated increased sales  - but the same cannot be said for profits. 

Kantar found that over the pandemic year to March 2021 customers spent an extra £15.2bn on groceries than in the comparable period before the emergency.

Tesco and Morrisons delivered the largest increases among the big four overall sales, both up 8.6%. Sainsbury’s generated a 7.8% uplift in grocery for the period.

The Co-op’s food business reported an eighth straight year of growth as revenues rose 3.5% to £7.8bn; Aldi reported an 8.3% sales growth to £12.3bn, and Ocado’s revenues surged 35% year on year to £2.2bn.

Despite record sales surges, underlying profitability was broadly hampered by Covid costs. For example, Tesco’s pre-tax profits slipped 20% to £825m, Morrisons’ were sliced in half to £201m, and Sainsbury’s slipped a whopping 39% to £356m.

Even those who increased underlying profits for the period, such as the Co-op, reported only “modest” gains once all the costs had been factored in. Only discounter Aldi reported relatively unfettered profit growth for the year, with pre-tax profits up 49% to £271.5m to December 31, 2020. 

Much of the grocers’ Covid-related costs spurred from implementing social distancing measures, acquiring PPE for staff, covering staff absences, hiring temporary staff and growing online availability during the period. 

However, controversy erupted over government support measures unveiled at the beginning of the pandemic, particularly those affecting business rates relief and furloughing staff. 

On December 2, 2020, Tesco announced it would return more than £525m to the Treasury in business rates relief. The other big four supermarkets and discounters soon followed suit. 

However, at its full-year updates, the Co-op was criticised for keeping £66.5m it received in business rates reliefs, despite having kept stores open and trading throughout.

Waitrose owner John Lewis refused to return any government support, as has Iceland.

While the decision not to return government money has been met with opprobrium on newspaper business sections and even from some members of parliament, it remains unclear whether the likes of the business rates holdouts will feel any backlash from customers. 

Market share

The most recent Kantar market share data update showed relative stability over the year. 

The biggest growth was from Ocado, which increased its share 0.3 percentage points to 1.8%. 

Tesco had the second-largest increase, up 0.2 percentage points to 27%, and frozen food specialist Iceland was third with a 0.1 percentage point increase to 2.3%. 

All other grocers’ shares either remained static or fell during the period. Aldi in particular suffered, as it was unable to meet the surge in online. 

As the vaccination programme continues, the shift to online appears to have stalled, and Aldi notched up its first market share gain since the start of the pandemic. 

The Co-op finished the year static at 9%, despite a 1.2 percentage point increase in market share in April 2020, as housebound customers began shopping increasingly at local c-stores. However,  in March its market share shrank as more customers began returning to supermarkets. 

The growth of online

Sainsbury’s chief executive Simon Roberts said the growth in online shopping during the pandemic “represented the biggest shift in grocery in 20 years”. 

In February 2021, in the midst of a third national lockdown, Kantar said that online penetration hit a record 15.4%, up from 8.7% pre-pandemic. As of April, online accounted for 13.9% of total sales. 

The grocers best able to meet this surging demand over the pandemic have seen online sales skyrocket. Tesco reported 77% growth in online grocery sales to £6.3bn, while Sainsbury’s reported 120% growth and Morrisons said online food sales tripled for the period. 

These numbers have been achieved by the big four in particular hugely ramping up delivery capacity. 

Tesco now offers more than 1.5 million delivery slots a week, having more than doubled capacity since last March. Asda now has a million online slots,  Sainsbury’s 850,000 and Morrisons has expanded capacity fivefold during to 240,000, on top of its partnerships with Ocado and Amazon. 

The big four have been able to rapidly grow capacity by predominantly bulking up their pick-at-store models. Ocado meanwhile, with its patented automated customer fulfilment centres, struggled to add capacity. 

Many grocers, as well as fulfilling themselves, have also teamed up with on-demand delivery businesses such as Deliveroo and Uber Eats. 

This surge in demand, combined with increases in capacity, means that for the first time grocery chief executives say that online is now a profitable channel. 

Roberts said: “Profit contribution from online has grown fourfold year on year, and we’ve doubled the online profit margin compared to a year ago.”

Where to now?

Moving forwards, one of the big questions will be how much of the shift to online seen during the lockdowns remains once restrictions ease and there is competition from sectors that have been shut, such as hospitality. 

Roberts believes the pandemic has led to a “permanent shift in the fact that more customers will shop online”, despite Kantar data over the last two months showing more vaccinated customers in the over-65 age groups returning to supermarkets. 

“There will be some reduction in online,” he said. “But even if that falls back to the low to mid-teens, it’s still a big increase on pre-pandemic levels”. 

If that is the case, the big four are in prime position to capitalise, having built availability and acquired new customers, at the expense of the discounters who have either been late to online, like Aldi, or have not invested in it at all, such as Lidl. 

However, despite being left behind in the online race, the discounters will take heart from shoppers returning to stores. Both have lofty targets of opening over 1,000 stores apiece by 2023.

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Also, despite the work being done on price by the big four, the discounters will also hope to lure customers away from rivals once the effects of the anticipated recession begin to bite.

Despite being hamstrung by availability issues last year, Ocado still grew the fastest. The etailer will also add three new fulfilment centres by the end of the year, which will help it add customers and grow sales, and has hailed the success of its switch to Marks & Spencer products, with customer basket sizes increasing as a result. 

The Co-op and Iceland have both added online capacity and increased store estates as an each-way bet on post-pandemic customer behaviour. Arguably the odd grocer out at the moment is Waitrose, which was left scrambling for online capacity after the Ocado switch, and may struggle in a customer flight to value amid recessionary conditions.

What is clear, from both the data and the grocers themselves, is that the overall food retail market has grown during the pandemic. The pandemic brought extraordinary trading conditions which lifted nearly all grocers. As more ordinary conditions start to return, the battle will be to keep hold of gains made and get ahead of the competition. 

While comparables this year will be tough, as long as the grocers come out ahead of 2019, notions of winners and losers may ultimately be semantic.